NorthStar Realty Finance's CEO Discusses Q1 2012 Results - Earnings Call Transcript

NorthStar Realty Finance Corporation (NRF)

Q1 2012 Earnings Call

May 3, 2012 10:00 AM ET

Executives

Al Tylis – Co-President, COO and Secretary

David Hamamoto – Chairman and CEO

Debra Hess – CFO

Analysts

Joshua Barber – Stifel Nicolaus

Presentation

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the NorthStar Realty Finance First Quarter 2012 Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today Thursday, May 03 of 2012.

And I would now like to turn the conference over to Al Tylis Co-President, Chief Operating Officer for NorthStar Realty Finance. Please go ahead, sir.

Al Tylis

Thank you very much. Welcome to NorthStar’s first quarter 2012 conference call.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management’s current expectations and beliefs, and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the company’s filings made with the SEC for more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with Generally Accepted Accounting Principles can be accessed through our filings with the SEC at www.sec.gov.

With that, I’m now going to turn the call over to our Chairman and Chief Executive Officer, David Hamamoto. David?

David Hamamoto

Thanks Al, and thanks everyone for joining us. In addition to Al, I’m joined today by Dan Gilbert, Co-President and CIO and Debra Hess our CFO and Ron Lieberman, our General Counsel.

During the first quarter of 2012, US economic indicators signaled increased positive momentum towards domestic recovery, although renewed concerns over Europe sovereign debt crisis contemporarily slowed down this progress.

Commercial real-estate fundamentals continue to get stronger and we saw a rally in the CMBS market during the first few months of 2012. Liquidity in the commercial real-estate debt market continues to return with $5 billion of US CMBS issue during the first quarter of 2012 and current projections ranging from approximately $30 billion to $35 billion for the full year.

In addition, the recent pricing of two securitization backed by non-conduit loan collateral indicates the broadening of investor appetite in the securitization market, which is a positive signal for us. While we’re not predicting the eminent return of the CDO markets that exists several years ago, we do believe that some form of securitization should become available to commercial real-estate finance companies like ours that have proven track record, deep investment organization and a willingness to retain risk associated with loans that we directly originate.

This past week, we announced our third consecutive increase to our common dividend representing a 50% increase in cash distributions over the last three quarters. As we look ahead through the remainder of 2012, we’re well positioned to continue to strategically grow the cash flows and earnings of NorthStar and we intend to regularly evaluate our dividend accordingly.

Turning to our investment strategy, our balance sheet remains solid with minimal corporate debt maturities relative to our liquidity which is enabling us to deploy our cash offensively in a compelling investment environment.

On the loan origination front, we see an increasing opportunity for NorthStar to earn attractive risk adjusted returns on its capital, given the positive market dynamic which include high supply demand imbalance fuelled by the significant amount of commercial real-estate debt maturities coming due over the next several years and the limited amount of capital available from debt providers such as banks.

We’ve been actively pursuing this opportunity and have directly originated $162 million of loans in 2012 including on behalf of our non-traded lease and have a significant pipeline of load originations in the late stages of execution.

The first mortgage loans that we have originated year-to-date our balance sheet have a current leverage yield of 17%. While we view this as an extremely compelling risk adjusted returns and believe that we can continue to originate first mortgage loans with similar characteristics, we’re also continuing to be opportunistic in our investment focus.

Opportunistic investments that we have made historically such as the acquisition of the CapSource and CapLease CDOs, repurchases of our corporate debt at steep discounts during the financial crisis and acquisition of our CDO bonds has been a hallmark of our success to date, and we’ll continue to pursue these types of opportunities that create long-term value for our shareholders.

Turning to our asset management business, we continue to make significant progress in building out our non-traded REIT business including our broker-dealer. Our capital raising pace continues to accelerate and we are clearly becoming a key player in the non-traded REIT sector as well as continuing to be a top-10 money raiser.

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